The BP (LSE:BP) share price has fluctuated considerably on geopolitical events over the past year. And Michael Burry, who runs Scion Asset Management, saw an opportunity as the FTSE 100 stock dipped.
Burry, a legendary name in the investing world, recently took a $6.5bn stake in the British oil major. The investment now represents 6.13% of Scion Asset Management’s portfolio. He’s already up 2.5%, according to portfolio trackers. So what did Burry see in BP?
Who’s Michael Burry?
Burry is a renowned investor and hedge fund manager, best known for his prescient investment strategies. The San Jose-born investor gained widespread recognition for his role in predicting the 2008 financial crisis.
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Not only did he predict the crash, through his hedge fund, Scion Capital, Burry made a fortune by betting against the US housing market using credit default swaps. His story was famously chronicled in Michael Lewis’s book The Big Short and its film adaptation.
Burry in known for his deep value focus and rigorous analysis. He often focuses on finding undervalued assets and isn’t afraid to take contrarian positions that go against prevailing market sentiments.
Looking through the Scion Asset Management portfolio, we can see Burry hasn’t lost it. With very few losers, he’s picked some big winners recently including The RealReal — up 133%.
What’s going on at BP?
In recent years, BP’s been strategically investing in renewable energy, aiming to diversify its portfolio and reduce dependence on fossil fuels.
Despite this shift, the company’s stock remains highly sensitive to fluctuations in oil prices. It’s not just BP, all energy majors are sensitive to changes in the price of black gold.
In turn, geopolitical events and potential supply disruptions have pushed oil prices up and down over the past month. Brent Crude is down around 4% over the period and BP shares are down 7.4%.
Nonetheless, investors need to remain focused on BP’s performance. It recently announced a worse-than-expected underlying replacement cost profit — BP’s measure of profitability — for the first quarter of $2.7bn, compared with $5bn a year earlier.
Should I buy the shares too?
I’ve been keeping a close eye on investments in the oil and gas space for some time. However, given the volatility of the sector, it can often be challenging to find the best entry point.
Burry’s contrarian approach can mean that some of his investments take time to turn around, and this could be the case with BP.
It’s been something of an underperforming oil major. Although it has a highly attractive portfolio of resources, it hasn’t been an investor favourite for some time.
The company trades at a discount to Shell and its American big oil peers, but that also reflects BP’s higher debt position. Much of BP’s debt still stems from the Deepwater Horizon disaster.
BP could follow in Shell’s footsteps with the latter aiming to improve its returns on equity to reduce the valuation gap with its US peers. But this won’t happen overnight.
I’m open to an investment in BP now, but I also see a lot of opportunity elsewhere in the world — outside of oil. While I’m working on avoiding concentration risk, I’m putting more money to work in AI.
